How Will Labor Market and Job Creation Rate Influence Commercial Real Estate Projections?

Despite widespread job openings now totaling well in excess of 6 million, a lack of skilled labor possessing the qualifications needed to fulfill the responsibilities required of those openings is likely to have a far-reaching impact on the health of the labor market as well as job creation — not to mention the potential effect on the commercial real estate sector’s outlook.

With unemployment reaching its lowest percentage (4.3 percent) in more than 16 years, along with more than 80 consecutive months of positive economic gains — and an economy close to, if not already at, full employment — it is clear that the outlook for the commercial real estate sector will continue to be linked to the overall economic growth rate as well as the rate of job creation.

The positive economic indicators have inspired a greater level of confidence from members of the workforce, including those previously wary — whether warranted or not — of the potential for a sudden backslide into economic instability. Since this newfound confidence is especially apparent among the demographic of young workers still likely to be living at home with their parents, the sustained strength of the labor market is expected to have a positive influence on apartment absorption.

Due to a strong sense of confidence and stability in the economy, the youngest generation of workers is increasingly looking to rent an apartment for the first time. Although the workforce is showing indications pointing to greater levels of confidence in the strength and stability of economy, the lack of skilled workers has still had a limiting effect on new job creation.

Even though job creation numbers may be experiencing the adverse effects of a tight labor market, there is reason to believe that, despite the adverse impact, the commercial real estate market will benefit nonetheless. This optimism can be attributed to the fact that despite a substantial shortage of skilled workers to fill open positions, demand for commercial real estate currently exceeds the pace of construction.

Of course, it is fair to wonder why commercial real estate demand is still on the rise in the midst of a labor shortage in which 6 million open positions remain unfilled. This is because certain companies, including those in the professional, business, and financial services employment sectors, have adopted a recruiting strategy revolving around recent graduates for positions requiring the use of office space. Even in an economy currently enduring a significant labor shortage, the jobs created by these companies alone have spurred increases in demand for commercial office space.

It’s worth noting that the economy has not entirely avoided the drawbacks that typically accompany a labor shortage of 6 million or more, as top-line growth has undoubtedly been limited by the inability of American businesses to fill open positions with skilled workers. As it stands now, however, the labor shortage might not necessarily hinder the current rate of economic momentum. After all, the income gains associated with a 4.3 percent unemployment rate and an 8.4 percent underemployment rate — which is the lowest in the past decade — should continue to have a positive impact on economic consumption for the foreseeable future.

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